Part 1. ALEKSEI NAVALNY – AN EXAMINATION OF HIS TRIAL AND CONVICTION

Navalny’s conviction and his sentence of 5 years imprisonment, has provoked angry reactions.  In Moscow several thousand of his supporters protested near the Kremlin.  Scattered protests also took place in some other Russian cities.  The United States government has expressed its "disappointment” with the verdict.  The European Union has said the case highlights concerns about the rule of law in Russia.  The rapporteurs of the Parliamentary Assembly of the Council of Europe have condemned his 5 year sentence as disproportionate and have claimed that his prosecution is political.

Media comment at least in Britain has been equally harsh.  In an editorial suggestively titled "misrule of law” published on 11th July 2013, a week before the verdict, the Guardian claimed that Navalny’s prosecution was a device to silence a prominent critic of the Russian government saying that "….it goes without saying that the charges are bogus”.

http://www.guardian.co.uk/commentisfree/2013/jul/11/russia-navalny-misrule-law-editorial?INTCMP=SRCH

Similar comments have appeared in the Times and in the Financial Times.

Navalny himself has claimed that the prosecution against him is politically motivated.  He has claimed that the prosecution against him betrays a fundamental ignorance of how business is conducted in a free market economy.  He has also claimed that the prosecution is entirely based on the evidence of three persons who have a personal grudge against him and whose evidence is unreliable.

Navalny’s criticisms have been taken up by others.  The charge against him is said to make no sense.  Yegvenya Albats, the editor of the Russian liberal magazine New Times, says his conviction spells the end of capitalism in Russia.  It is repeatedly pointed out that the case against Navalny was investigated previously but was then dropped.  That it was later resurrected is seen as proof that it is without merit and that the motive behind it is political.

It has also been pointed out that the case against Navalny was only resurrected by the Russian Investigative Committee at the personal insistence of Bastrykhin its chief whom Navalny has accused of illegally owning property in the Czech Republic.  Navalny’s prosecution is said to Bastrykhin’s revenge.

Support for these claims is said to be provided by certain comments made shortly before the trial by Vladimir Markin the spokesman of the Investigative Committee.

The purpose of this essay is to examine in detail the facts of the case and the conduct of the trial to determine whether any of these claims and criticisms are true.

Background

The Kirov Region is situated in central Russia along the river Vyatka.  It is one of the poorer regions of Russia.  The capital Kirov, like the Region, has retained the name it was given in the 1930s by the Soviet government commemorating the murdered Soviet politician Sergei Kirov.  Its pre revolutionary name was Vyatka.

Wikipedia lists timber as one of the main industries of the city of Kirov.  In 2008 at the time of Belykh’s appointment the timber industry in the Kirov Region was concentrated in a publicly owned enterprise known as KirovLes whose director was Vyacheslav Opalev.  KirovLes’s owner was the state property fund of the Kirov Region.  Its manager was a certain Arzamatsev.  I am not sure whether Arzamatsev was a local civil servant or a career official or whether he was also appointed to his post by Belykh.

KirovLes’s financial health at the time of Belykh’s appointment is the subject of dispute.  Belykh and Navalny claim its financial situation was bad and that it was heading for bankruptcy.  Karnaukhov, a local official with knowledge of KirovLes, argues its financial condition was sound.  I think far too much time and effort has been devoted to this question, which is of no importance.

KirovLes is an amalgam enterprise and collective.  It possessed a distinct legal personality and was vertically structured with Opalev as director in charge of the whole.  However it functioned as a federation of local collectives or enterprises ("levkhozy” – henceforth referred to as "filials”) under Opalev’s overall control but nonetheless allowed considerable operational autonomy and able to contract directly with customers.

Belykh brought with him to the Kirov Region a group of his own advisers.  The best known was probably Maria Gaidar, the daughter of Yegor Gaidar who as Acting Prime Minister of Russia in the early 1990s was responsible for Russia’s transition to capitalism.  Maria Gaidar had condemned Belykh’s appointment as "selling his soul to the Devil”.  Obviously she quickly changed her mind.  In July 2009 she was formally appointed Deputy Governor of the Kirov Region.

Others brought by Belykh to the Kirov Region to act as advisers included an individual known as Votnikov and Navalny himself.

The precise status of Belykh’s advisers was clarified by Belykh himself, by his deputy Sherchkov and by Maria Gaidar over the course of Navalny’s trial.  The advisers were unpaid and worked on a voluntary ("pro bono”) basis.  Their role was advisory.  They were not authorised to make executive or management decisions.  Navalny as adviser did not have his own office.  Most of his meetings were held in Sherchkov’s office.  At some point Navalny was offered a paid post with the Kirov Regional Government but turned it down.

Navalny’s status as an adviser to Belykh is clear but I cannot say the same for his remit (ie what he was supposed to do) about which I continue to be confused.  I do not know whether Belykh ever gave Navalny a document setting out his duties and the tasks he has been assigned.  Perhaps he did but as I have never heard of such a document being produced at the trial perhaps not.  It seems Navalny was given some sort of general brief to review and "analyse” conditions in the local timber industry and other industries and "to propose solutions”.  As will become clear Navalny interpreted this vague remit as a licence to meddle in the most detailed decisions, which fell completely outside his competence as an unpaid adviser.  If Navalny behaved like a loose cannon and if subsequent events bear a passing resemblance to a tale from Gogol much of the blame rests with Belykh for his failure to supervise Navalny and his other subordinates properly.

Whatever the precise nature of Navalny’s remit it is clear that it concerned KirovLes.  It is also clear that KirovLes over time became one of his main if not his main concern.  At the time Navalny was a relatively young man in his early thirties.  Nothing about his past up to that point marks him out as a person obviously competent to analyse the timber industry in the Kirov Region or "to propose solutions” for its problems.  Navalny had trained as a lawyer and had dabbled in various business ventures.  However he had no senior or professional management or consultancy experience or expertise.  Certainly he had no experience of the timber industry.  Navalny had however achieved a certain prominence in Russian liberal politics.  He seems to have made the acquaintance of some well known liberal politicians and personalities possibly including the former world chess champion Gary Kasparov, the economist Sergei Guriev and Belykh himself.  It seems likely that his appointment (like that of Maria Gaidar) was the result of his political connections.

Whatever the reasons for his appointment Navalny’s conduct in his post suggests someone either indifferent to his assigned task or seriously out of his depth.  I have seen no evidence that he made a serious effort to study KirovLes and its problems.  He did meet with Opalev but there is nothing to suggest that he acquainted himself with KirovLes’s staff or its business to any great extent.  It turned out during the trial that most of KirovLes’s senior managers or at least the managers of the filials either could not remember him or were unacquainted with him.  There were some suggestions during the trial that KirovLes’s problems were due to uneconomic rents it was receiving from its forests.  If so there is nothing I have heard to suggest that Navalny was interested in this problem or offered any solutions for it.  At a much later date he did try to get Deloitte to undertake an audit but the circumstances in which this happened are heavily bound up with his case and are not in his favour.  I have heard nothing to suggest that he proposed anything remotely resembling a fully researched and properly costed business plan for KirovLes or that he ever presented such a plan to Opalev or Arzamatsev or Sherchkov or Belykh or that he ever set out in detail on paper any of his ideas.  I have seen it suggested that there was a plan to break up KirovLes, which Belykh might have supported.  If such a plan existed it has never so far as I know been made public.

The Prosecution Case

The prosecution case is that Navalny did not carry out his remit, such as it was, but that together with an associate of his called Pyotr Ofitserov that he organised a conspiracy with Opalev to acquire KirovLes’s timber at 7% below its true price for resale for their mutual profit mainly to KirovLes’s own customers.  The timber was formally acquired by Ofitserov’s company the Vyatka Timber Company (henceforth referred to by its Russian initials "VLK”), which in turn sold the timber at its true price to its own customers most of whom had previously been KirovLes’s customers.

Opalev by his own account initially opposed this arrangement but was eventually brought round by a mixture of threats and offers to share in the expected profits.  In order to put the arrangement into effect Opalev issued an order to the filials that VLK was to be given a first or exclusive or preferential (it is unclear to me which) right to buy timber from KirovLes at a price below its true price.

Opalev’s stepdaughter Maria Bura was given a post within VLK at the same time as she continued to work for KirovLes despite the obvious conflict of interest, presumably as a gesture of goodwill to Opalev and possibly so she could protect his interests inside VLK and provide VLK with some much needed expertise of the timber industry.

It is important to say however that neither Navalny nor Opalev ever formally owned shares or held any formal position in VLK.

The venture only survived for about four months.  Despite Opalev’s order it was unpopular with the filials, who appear to have largely disregarded it.  Notwithstanding the low price it paid for the timber VLK failed to trade at a profit.  An audit commissioned by Arzamatsev, the head of the Kirov Region’s property fund, reported that the arrangement was harmful to KirovLes.

Navalny attempted to defend the arrangement.  He sought to discredit the audit by attempting without success to bring in Deloitte to carry out another audit.  He also sought to dismiss Bastrygina, an executive in KirovLes’s accounts department who was involved in the audit.  He briefly engineered Opalev’s dismissal with whom he had by this time seriously fallen out.

Navalny’s efforts in the end proved unavailing.  As more and more questions piled up he suddenly fled the Kirov Region for Moscow leaving behind him a pile of unanswered questions and Ofitserov high and dry.  I believe he never returned to the Kirov Region until his trial.

The Charge – Embezzlement contrary to Article 160 Russian Criminal Code

Assuming the prosecution’s account to be true do these facts describe a crime?

The prosecution charged Ofitserov with embezzlement of 16 million roubles (approximately $500,000) worth of timber bought by VLK from KirovLes at a discounted price and resold by VLK at a market price mainly to KirovLes’s own customers.  The charge against Navalny was that he conspired with Ofitserov and Opalev to carry out this embezzlement.  Opalev himself pleaded guilty and testified against Navalny and Ofitserov, being the prosecution’s star witness at the trial.

Article 160 of the Russian Criminal Code defines embezzlement as

"…..the stealing of other people’s property entrusted to the convicted person”.

(Italics added)

There are therefore two elements:

(1)   There must be a theft of property;

(2)   The property stolen must have been entrusted to the thief.

Theft is defined as follows by Article 158 of the Russian Criminal Code

"…..the secret larceny of other people’s property”

(Italics added)

Larceny is defined elsewhere in Article 158 as

"…..the unlawful, uncompensated seizure and/or the appropriation of other peoples’ property, committed with a mercenary purpose by a guilty person or by other persons, which has injured the owner or any other proprietor of this property.”

(Italics added).

The following elements must therefore be present:

(1)   An uncompensated seizure and/or an appropriation of property;

(2)   Belonging to another;

(3)   Which is unlawful;

 

 

(5)   Which causes injury to the true owner or proprietor of the property.

This may be compared with the British definition of theft set out in Section 1(1) of the Theft Act 1968

"A person is guilty of theft if he dishonestly appropriates property belonging to another with the intention of permanently depriving the other of it; and "thief” and "steal” shall be construed accordingly”.

It is clear that despite the differences in legal and political culture the definitions of theft in Russia and Britain have many similarities.

Article 158 requires an "uncompensated seizure” and/or an "appropriation”.  The Theft Act 1968 merely requires an "appropriation”.  British law defines "appropriation” as an assumption of the rights of the owner of the property, specifically

"any assumption of the rights an owner amounts to an appropriation, and this includes, where he has come by the property (innocently or not) without stealing it, any later assumption of a right to it by keeping it or dealing with it as owner”.

 (Theft Act 1968 Section 3(1))

(Italics added).

It is clear from the British definition of "appropriation” that future dealing in the property including its sale by the thief is an assumption of the rights of an owner over the property and is therefore an appropriation within the definition of appropriation provided by the Theft Act 1968.

I do not possess a legal definition of the Russian word in Article 158, which is translated in the translation of Article 158 I have used by the English word "appropriation”.  However the legal translation agency that has provided this translation of Article 158 has used the English word "appropriation” to translate the equivalent Russian word in the context of a legal definition of theft.  This is certainly intentional.  It is therefore likely that the Russian word translated by the English word "appropriation” has the same or at least a similar meaning in this context to the English word "appropriation”, which has been used to translate it.

Both Article 158 and the Theft Act 1968 require that the property appropriated must belong to another.  The Theft Act 1968 requires that the thief must intend to deprive the owner permanently of the property.  Article 158 does not say this though it might be inferred from its language.  This is not a relevant question in Navalny’s case and I will not discuss it further.

The Theft Act 1968 requires dishonesty on the part of the thief.  Article 158 says that the appropriation must be "unlawful”.  Article 158 also refers to "the guilty person”, which may indicate that theft under Article 158 also requires dishonesty.  I shall presume it does.

Article 158 requires that the thief must have a "mercenary intention” ie. an intention to profit financially from the theft.  This differs from the position in the Theft Act 1968 where there need be no such intention

"it is immaterial whether the appropriation is made with a view to gain, or is made for the thief’s own benefit”.

(Theft Act 1968 Section 1(2))

Article 158 requires that the owner suffers an injury as a result of the theft.  I am not sure whether "injury” means financial loss but I shall assume it does.  This is not an issue in Navalny’s cases.  The Theft Act 1968 makes no such provision.  What it does say is that the fact the thief intends to compensate the owner does not prevent the appropriation from being dishonest

"A person’s appropriation of property belonging to another may be dishonest notwithstanding that he is willing to pay for the property.”

(Theft Act 1968 Section 2(2))

How do these definitions square with the facts in the case against Navalny as the prosecution describe them?

Timber belonging to KirovLes to the value of 16 million roubles was acquired by VLK.  VLK treated the timber as its own by selling the timber to its customers most of whom had previously been KirovLes’s customers.  There was therefore an acquisition by VLK of KirovLes’s property.

Was this acquisition "unlawful” and/or "dishonest”?  The prosecution say VLK acquired the timber for less than its value because Opalev, KirovLes’s director, after being threatened and bribed by Navalny and Ofitserov, entered into a corrupt arrangement to transfer KirovLes’s timber to VLK for less than its true price.  If so then this was certainly "unlawful” and "dishonest”.

Did the timber still belong to KirovLes after VLK acquired it?  A corrupt transfer of timber for less than its true value made "unlawfully” and "dishonestly” as part of a corrupt arrangement agreed in secret by three individuals would not transfer ownership of the timber from KirovLes to VLK.  The timber would still be KirovLes’s property.  Since VLK sold the timber to third parties after it acquired it there was clearly an assumption by VLK of the rights of the owner over the timber and an intention to deprive KirovLes permanently of the timber.

At this point all the elements for theft required by the Theft Act 1968 are present.  In Britain the facts set out in the prosecution’s case amount to theft.

Article 158 adds two further elements.  The thief or thieves must have "a mercenary intention” (ie. an intention to make a financial gain from the theft) and the owner (in this case KirovLes) must suffer injury.

The prosecution say Navalny, Ofitserov and Opalev did intend to profit from the theft.  As to the injury suffered by KirovLes, the prosecution refer to the financial loss KirovLes suffered from being deprived of 16 million roubles worth of timber for less than its true value.

In conclusion if the prosecution’s account of the case is true all the elements of theft are present whether British or Russian law is applied.

The charge against Navalny was not theft under Article 158 but conspiracy with Ofitserov and Opalev to commit embezzlement of KirovLes’s timber under Article 160.  The charge against Ofitserov was embezzlement of KirovLes’s timber under Article 160.  The difference in the way Navalny and Ofitserov were charged is due to the fact that Ofitserov was the owner of VLK, the company which actually acquired the timber, whilst Navalny had no share or formal role in VLK.

In Britain the common law offence of embezzlement has been absorbed into the offence of theft.  In Britain this would be a simple case of theft.  Since the three persons involved (Navalny, Ofitserov and Opalev) acted together there would be no need to complicate the case by introducing the issue of conspiracy.   Navalny and Ofitserov would be charged with theft.

Russian law still distinguishes between embezzlement and theft.  I am not familiar with Russian jurisprudence on the subject of embezzlement.  On a simple reading of Article 160 it is however clear both elements required by Article 160 are present.  There was a theft as defined by Article 158.  The property stolen was at various times in the trust of Opalev and Ofitserov, two of the persons involved.

In fact there have been multiple breaches of trust.  Opalev as KirovLes’s director was in a direct position of trust both as regards KirovLes and as regards its timber.  Navalny was in a special position of trust as an adviser to Belykh who was supposed to analyse KirovLes and provide solutions to its problems.  Ofitserov had an intimate connection to KirovLes that went beyond that of a mere customer.  Both Navalny and Ofitserov knowingly acted in a way that caused Opalev to breach the trust he owed KirovLes by knowingly disposing of its timber in his charge in a way that fulfils the definition of theft.  Since there was no lawful transfer of property in the timber to VLK, the timber remained KirovLes’s property even after it was acquired by VLK.  Ofitserov by disposing of the timber through his company VLK was unlawfully appropriating timber that was not his or VLK’s and which was therefore in his trust.  Navalny conspired with both Opalev and Ofitserov to steal the timber in ways that caused them to breach their trust.  It is clear that all the elements required for embezzlement as set out in Article 160 are present.

The facts the prosecution allege do therefore describe a crime.  That crime would in Britain be theft as defined by Section 1(1) of the Theft Act 1968.  In Russia the crime is embezzlement as defined by Article 160 of the Criminal Code of the Russian Federation.  Claims the case against Navalny makes no sense are obviously wrong.

Objections to the Charge

There are two objections to the charge of embezzlement under Article 160 both of which have been extensively discussed on the internet though less so in the trial itself.  These are

(1)   that a charge of embezzlement of 16 million roubles worth of timber makes no sense when KirovLes’s alleged loss was just 3 million roubles, this being the difference between the amount VLK paid KirovLes for the timber (13 million roubles) and the amount for which VLK sold the timber mostly to KirovLes’s own customers (16 million roubles); and

(2)   the somewhat related claim that this was a case where the charge should have been for property damage caused by deceit or abuse of trust under Article 165 of the Criminal Code of the Russian Federation, this being a significantly less serious offence than the offence of embezzlement under Article 160.  Again this tends to be argued on the basis of the limited extent of the actual loss suffered by KirovLes.

(1)   3 million or 16 million roubles?

Wisely, rather than engage in a discussion of principles, the prosecution simply answered this objection by referring to a Judgment of the Supreme Court of the Russian Federation that dealt with questions of the theft of state property and which made clear that in all cases pertaining to the theft of state property the measure to be used for the theft is the total value of the property stolen irrespective of whether any lesser amount of compensation has been purportedly paid for it.

The Judgment is binding on inferior courts including the one that tried Navalny.  For the purpose of the case it resolves the question.  Since KirovLes was a publicly owned company there is no doubt the Judgment of the Supreme Court of the Russian Federation applies to the case.

The Supreme Court Judgment states the obvious.  Navalny and Ofitserov were prosecuted for the theft of timber from KirovLes.  The figure of 16 million roubles is simply the value of the timber they stole.  This figure should not be confused with the completely different figure, which is the value of the injury this caused KirovLes.  It is immaterial to the value of the timber stolen that VLK paid a sum to KirovLes for the timber, which was actually less than what the timber was worth.  What that does is determine the value of the injury to KirovLes the theft of the timber caused.  To argue for the prosecution of a thief on the basis of the value of the loss the theft has caused as opposed to the value of the goods stolen is to say that a jewel thief should not be prosecuted for the value of the stolen jewels because the jewels were insured and the owner has been compensated by the insurers for the theft and is also relieved of the future burden of paying premiums.

(2)   Article 160 or Article 165?

The offence created by Article 165 of the Criminal Code of the Russian Criminal Code reads:

"Infliction of property damage on its owner or on any other property holder by deceit or breach of trust, in the absence of the elements of stealing”.

(Italics added)

The wording of the offence set out in Article 165 says the offence arises "in the absence of the elements of stealing”.  "The elements of stealing” are all present in Navalny’s case (see above).  Subtracting the facts from the case that create "the elements of stealing” (the unlawful appropriation of timber belonging to KirovLes) takes away those facts that create the wrongdoing.  The presence of the words "in the absence of stealing” mean that Article 165 has no application to Navalny’s case.

Article 165 is one of the Articles in Chapter 21 of the Criminal Code of the Russian Federation, which concern Crimes against Property.  Articles 158 to 162 and Article 164 in Chapter 21 all concern offences of stealing.  Article 163 covers extortion, Articles 167 and 168 offences involving destruction of property and Article 166 the unlawful occupancy of a motor vehicle without the purpose of stealing.  It is clear that Article 165 falls within the Articles in this Chapter that are not concerned with offences of stealing.  Since it is precisely theft which is the essence of the offence in Navalny’s case Article 165 has no application to it even if the words "the absence of the elements of stealing” were not present.

Article 165 says the offence involved is one of property damage caused by deceit and/or abuse of trust.  Property damage should be distinguished from Economic Activity the crimes concerning which are listed under Chapter 22 of the Criminal Code.  Article 165 might conceivably cover a person who has borrowed a friend’s car and who driving it recklessly crashes and damages it.  However, more prosaically, Article 165 may be intended to deal with the fiddles, fake expenses claims and other types of loss and property damage commonplace within companies and organisations.  Regardless of whether this is so or not Article 165 has no application to Navalny’s case and there are no grounds to say that the charge under Article 160 was not correctly made out and should have been brought under Article 165 instead.

Prosecution’s Evidence

The prosecution’s case against Navalny and Ofitserov is based on the following evidence:

(1)   The evidence of Opalev;

(2)   The evidence of other witnesses;

(3)   The relationship between Navalny and Ofitserov as confirmed by taped telephone conversations and emails between them;

(4)   The actual dealings between KirovLes and VLK.

(1)   Opalev’s Evidence

In an outburst during the trial Navalny said the "whole case” against him came down to the testimony of just three witnesses: Opalev, Bastrygina and Bura.  That is an exaggeration.  However of the importance of Opalev’s evidence there is no doubt.

Opalev is one of the three individuals who the prosecution say was part of the conspiracy to embezzle KirovLes’s timber.  As KirovLes’s director he was arguably the key figure in the conspiracy.  Without his involvement the embezzlement could not have happened.  Opalev’s evidence confirming the existence of the conspiracy and providing details of the embezzlement effectively substantiates the prosecution case. Any attempt to argue for Navalny’s or Ofitserov’s innocence must do so by discrediting Opalev as a witness.

Navalny has attempted to discredit Opalev as a witness by claiming that Opalev bears him a grudge because he sought to get Opalev sacked from his post as director of KirovLes and did in fact briefly succeed in doing so.

Opalev may indeed bear Navalny a grudge.  However for this grudge to explain his evidence it must be a grudge so powerful that it has led Opalev to plead guilty to a charge of embezzlement of which if his evidence is untrue he must be innocent, which comes with a four year suspended sentence with all that means for Opalev’s reputation and future career, so that he can go to Court and falsely claim Navalny conspired with him to steal timber from his own company.  Nothing I have heard about Opalev suggests such a fanatical personality.  Accounts I have heard of his demeanour at the trial suggest on the contrary a broken and defeated man.

Of course there are some who go further and believe Opalev was either pressured or put up to it by the authorities as part of a plot against Navalny.  No evidence for that came to light in the trial.  Opalev was subjected to a tough cross examination by Navalny himself.  If Opalev really was acting out a grudge or if he really had been put up to it or pressured into it by the authorities that fact would surely have slipped out.  As it was, though Opalev came across at times as vague and confused, which is not surprising given what he has been through, in the end he stood by the essentials of his story and said nothing that might suggest either that he had made the whole story up to act out a grudge or that he was pressured or put up to do it by someone else.

It has been said that Opalev when giving evidence at times contradicted himself.  None of the alleged contradictions however undermine his basic story.  It is only in fiction that witnesses recall deeply distressing events that happened years before with perfect recall.  When this appears to happen in real life more often than not it is a sign that the witness’s evidence has been rehearsed and that the witness is lying.

It is for the Judge to assess the reliability of a witness.  The Judge in this case assessed Opalev’s evidence as reliable.  He said there was nothing to suggest that Opalev was not telling the truth.  I see no reason to question that assessment.

(2)   Other Witnesses

The evidence of the other witnesses added little and I will not devote much time to it.

Bura and Bastrygina, the two other witnesses Navalny had in mind along with Opalev when he said the case against him was based on the evidence of just three people, were not members of the alleged conspiracy and could say nothing about it.  Bura, Opalev’s stepdaughter, unsurprisingly gave evidence in line with her stepfather’s.  However she was hardly in a position to know very much about what had gone on in private between Opalev, Navalny and Ofitserov though she did provide some corroboration for Opalev’s account of the sale of timber to VLK and its subsequent resale by VLK.

In the absence of Arzamatsev , who is on the run from the police on an unrelated charge, Bastrygina gave evidence about the audit Arzamatsev commissioned, which exposed the loss KirovLes suffered from the arrangement with VLK.  Navalny is particularly hostile to Bastrygina (as he was at the time of the audit) and believes that she too bears him a grudge.  He subjected Bastrygina to a day of exceptionally tough cross examination, on more than one occasion bringing her close to tears.  However she stood by her story, which is the same story she told four years ago at the time the audit took place.

Navalny also ascertained under cross examination that many of the directors of the filials and KirovLes’s and VLK’s customers had either no or only the vaguest memory of him and of the events that took place.  As these events happened four years ago that in is unsurprising.  These witnesses had their faulty memories refreshed or supplemented by their witness statements.

Belykh along with Sherchkov and Maria Gaidar – the latter giving evidence for the defence –  provided clarification of Navalny’s status as an unpaid adviser.  Belykh as Governor said that he had been provided with no information that Navalny’s activities had done the Kirov Region any economic damage but admitted that this was a matter for the state property fund and that he had no informed knowledge of the matter.  These elliptical not to say evasive comments were seized on by Navalny’s supporters as somehow supporting Navalny though in truth they do nothing of the sort.

Votnikov, another of Belykh’s advisers, gave evidence that seemed to be mainly about Opalev’s inability to adapt to changes in market conditions despite his undoubted abilities as a production manager.  I cannot see the relevance of this evidence.  However it turned out that Votnikov is serving a prison sentence for taking a bribe from Opalev.  I am told this bribe was a form of protection money Votnikov extorted from Opalev in return for Votnikov protecting Opalev from Navalny.  If this is true then it may provide some corroboration for Opalev’s story and shows the pressure he was coming under from Navalny.  However I am not sure it is true and it does not prove the case against Navalny even if it is true.  On the contrary it might show that Opalev needed protection from Navalny because he had something to hide from Navalny and was up to paying bribes to hide it.  I know next to nothing about this case and I will not comment about it further.

Overall apart from further confirming the chaotic state of the administration of the Kirov Region on Belykh’s watch with Votnikov in prison, Arzamatsev on the run and Opalev with a four year suspended sentence to add to the case against Navalny and Ofitserov, I do not think the evidence of these witnesses adds very much.  To the extent that it does anything this evidence tends to corroborate Opalev’s story.  Accounts I have heard of the final Judgment suggest that whilst the Judge carefully went through this evidence as he is required to do he gave little weight to it except in so far as it corroborates the other evidence in the case.

(3)   The Relationship between Navalny and Ofitserov

Navalny and Ofitserov insist that they each came to the Kirov Region independently of each other.  Ofitserov’s account is that he was moved to do so on hearing a broadcast by Belykh calling on people of goodwill to come to the Kirov Region to help turn it round.  When he arrived he found Navalny there.

This may seem unlikely but it is not impossible.  Belykh’s appointment as Governor of the Kirov Region was unexpected and did cause something of a stir in Russian liberal circles.  Ofitserov is a liberal having previously been like Navalny a member of Yabloko, Russia’s largest liberal party.  It is not impossible that he was seized by the enthusiasm of the moment.  I do not know to what extent if any Navalny and Ofitserov were acquainted with each other before they came to the Kirov Region.  Even if they did know each other the world of Russian liberal politics is small so it is not impossible that any two prominent Russian liberals drawn to the same place would already know each other.

However from this point on Navalny’s and Ofitserov’s account descends from the merely unlikely to the increasingly improbable and eventually to the completely incredible.

Navalny and Ofitserov both insist that Navalny played no role in introducing Ofitserov to Opalev and in setting up the arrangement with VLK.  Supposedly Ofitserov and Opalev came together and set up the whole arrangement by themselves without Navalny being involved.

This of course contradicts what Opalev says, which is that it was Navalny who engineered the whole thing. The Judge preferred Opalev’s account and it is not difficult to see why.

Navalny’s and Ofitserov’s account fails to explain why Opalev, someone whom Votnikov has described as an experienced enterprise director, should agree without prompting to enter into an arrangement with Ofitserov, an individual with whom he was entirely unacquainted, who had no previous background or history in the timber trade and who if he did ever provide Opalev with a properly drafted and costed business plan (something I have never heard that he did) was a most unlikely candidate to carry it out.

The timber trade operates on tight margins with high running costs.  It is not a business for the inexperienced or the fainthearted.  Opalev of all people would have known this.  That makes his agreement to enter into an arrangement with Ofitserov incomprehensible unless he felt obliged or was bribed to do it.  In the event and predictably, despite Opalev’s placing Bura his stepdaughter inside VLK, possibly in order to provide VLK with someone with some knowledge of the timber industry, the arrangement was a complete failure even on its own terms.  KirovLes lost on the timber acquired by VLK and VLK was unable to trade at a profit despite acquiring the timber at less than its true price.

If Navalny really was as uninvolved in setting up the arrangement between Ofitserov and Opalev and KirovLes and VLK as he and Ofitserov say then it is difficult to understand why he defended Ofitserov and the arrangement with such vehemence when it came under criticism following Arzamatsev’s audit.  Taped telephone conversations and records of emails between Navalny and Ofitserov show Navalny campaigning for the dismissal of Opalev and Bastrygina, seeking to bring in Deloitte to discredit Arzamatsev’s audit and eventually fleeing to Moscow when questions about his own role started to be asked.

These telephone conversations and emails between Navalny and Ofitserov also show the extraordinary extent of the collusion between the two.  In those emails and conversations Navalny discusses in extraordinary detail conversations he has with Belykh, Sherchkov and others in a way that is surely incompatible with Navalny’s position as Belykh’s adviser.  He discusses his plans to dismiss Opalev and Bastrygina and for the appointment of Ofitserov to a consultative post in the local timber industry. He asks for and receives from Ofitserov information about VLK and its business.  In the coarsest language he abuses and makes threats (eg. "bitch” – with specific reference to Bastrygina, "sack them”, "crush them” etc) about various persons such as Bastrygina who he comes into conflict with.

The talk is all of intrigues and conspiracies and stratagems though in fairness to Navalny and as he has himself pointed out only a selection of his telephone conversations and emails from the period have been produced and the others may show him in a better light.  Regardless Navalny and Ofitserov certainly do not come across in these conversations and emails as two persons working independently of each other.

What the telephone conversations and emails also show is that it was Navalny who of the two was the one in the position of leadership.  It is Navalny who comes up with ideas, who demands and provides information and who gives instructions.  Ofitserov’s role is mainly passive/receptive.  On one occasion Navalny instructs Ofitserov to buy a new mobile phone to prevent their conversations from being taped and to encrypt his emails.  Instead of questioning these unusual (and incriminating) instructions Ofitserov simply carries them out.

Navalny has never provided a straightforward explanation for these emails and telephone conversations.  The only explanation I have heard is a totally fantastic one: that he was using Ofitserov as some sort of spy or informer to discover what was really going on inside KirovLes.  If this is Navalny’s explanation then I would first say that like Navalny’s other claims that Opalev and Bastrygina testified against him because they bear him a grudge, it is very much in character and reflects Navalny’s need always to represent himself as a hero battling a host of enemies, and secondly, that as an explanation it is completely fantastic.  Suffice to say there is no conceivable reason why Navalny would need a spy or informer to carry out his tasks as Belykh’s adviser.  Nor is there any obvious reason why that person should be Ofitserov.  I have heard of no evidence that Navalny ever put such a bizarre proposal to Belykh and Sherchkov, his superiors, who would presumably have had to authorise it.

In any trial the Judge at the end of the day has to decide who is telling the truth.  Given the failure of Navalny and Ofitserov to provide a simple account of their connection to each other and of Ofitserov’s dealings with Opalev it is in no way surprising that the Judge decided in the end to believe Opalev rather than Navalny and Ofitserov and to conclude that the two were acting in concert with each other.  Given the facts and what the telephone conversations and emails show what would have been surprising is if he had done otherwise.

(4)   Course of Dealings between KirovLes and VLK

Ultimately the strongest corroboration of Opalev’s evidence is the actual course of dealings between KirovLes and VLK.  It is irrefutable that VLK paid a lower price for the timber it acquired from KirovLes and that it sold the timber at a higher price to its customers most of whom had previously been KirovLes’s customers.  It is also irrefutable that Opalev made the order to the filials giving VLK some sort of advantageous position even if the extent to which this order was obeyed and its precise meaning may be open to question.

The evidence that the lower price paid by VLK to KirovLes was a price below the proper market price is provided by

(1)   The evidence of Opalev, who actually set the price and who says it was 7% below the market price and that he set this price as a result of the corrupt arrangement he agreed with Ofitserov and Navalny;

(2)   The evidence of the higher price paid for the timber by VLK’s customers, most of whom had previously been KirovLes’s customers;

(3)   The fact that the lower price paid by VLK was noticed and questioned at the time by Arzamatsev and Bastrygina and the auditors commissioned by Arzamatsev all of whom said KirovLes’s arrangement with VLK was harmful to KirovLes.

It has never been clear to me what Navalny’s and Ofitserov’s response to all this evidence is and whether they admit or deny that VLK acquired the timber at a reduced price.  The whole arrangement between KirovLes and VLK only makes sense if VLK acquired the timber at a reduced price.  However towards the end of the trial the defence lawyers sought to adduce expert evidence that the price paid by VLK for the timber was the same or even higher than the price of other timber KirovLes sold to other customers at the same time.  This suggests that Navalny and Ofitserov claim that VLK paid KirovLes a proper price for the timber and not a reduced price.

The obvious objection to this argument is that what is at issue in this case is not the price of timber sold by KirovLes to other customers but the price of the timber acquired by VLK.  The true or market price for any product is decided through a free commercial bargain agreed by the parties at arm’s length.  The corrupt arrangement Opalev describes is most definitely not a free commercial bargain agreed at arm’s length.  VLK’s sale of the timber to former customers of KirovLes at a high price for which it had previously paid KirovLes a low price appears to corroborate what Opalev says and is a good reason to doubt that VLK acquired the timber from KirovLes at a proper price arrived at through a free commercial bargain agreed at arm’s length.

Arguing that VLK paid KirovLes a proper price for the timber is ultimately incompatible with the existence of the 7% discount Opalev alleges.  Whether the discount existed or not is in the end a question of fact.  The weight of the evidence including Opalev’s evidence, his order to the filials, Arzamatsev’s audit, Bastrygina’s evidence and above all the difference in prices paid by and to VLK, points strongly to its existence.

A complication is that Navalny and Ofitserov or at least their lawyers made arguments that at times appeared to admit the existence of the discount.  For example during closing speeches one of the defence lawyers described VLK as "effectively” KirovLes’s "sales and marketing department” something which the lawyer also said "was very necessary”.  This admits a relationship between KirovLes and VLK different from that between a simple buyer and seller.  If so then it is difficult to see how the price paid by VLK could have been a market price in which case given the difference in prices paid and received by VLK the existence of the discount becomes unarguable.

It has been suggested that certain commercial cases brought by KirovLes against VLK in the Russian commercial or arbitrazh courts somehow show that the relationship between the two companies was a normal commercial relationship.  I know nothing about these cases.  However a civil claim would not normally extinguish a criminal liability and I do not see why the mere fact of these cases proves that the two companies were in a normal commercial relationship.  The mere fact that KirovLes sued VLK does not show that Navalny, Opalev and Ofitserov did not steal KirovLes’s timber using VLK as their vehicle.

The Judge in the end decided that the difference in the prices paid to KirovLes by VLK and the prices paid to VLK by its customers corroborate Opalev’s claim that the lower prices paid to KirovLes by VLK were the result of the corrupt arrangement Opalev says he agreed with Ofitserov and Navalny.  In light of the facts it is difficult to see how the Judge could have come to any other view.

Injury to KirovLes

The definition of theft in Article 158 requires that there should be injury to the owner of the stolen property.  Whilst the Theft Act 1968 does not expressly require this I doubt the British authorities would prosecute a theft of this sort if the owner had not suffered harm.

At its simplest the injury KirovLes suffered was the financial loss it suffered because VLK paid less than the proper price for the timber, which KirovLes would have been paid if it had sold the timber through a proper commercial arm’s length contract on the free market.  KirovLes’s loss was therefore the difference between the proper price of the timber and the price it was paid by VLK.  This difference is said to be 3 million roubles.

The prosecution arrived at what it says is the proper price for the timber by looking at the price VLK was paid for the timber when it sold the timber to its customers most of whom had previously been KirovLes’s customers.  If KirovLes had sold the same timber to these customers (as it did before arrangement with VLK) this is the price they would have paid KirovLes.  As I understand it this price was determined by a price formula previously agreed between the customers and Opalev.

I understand that Russian law requires that expert opinion be provided to confirm the proper market price.  I presume that it was and that it confirmed that the market price for the timber was the price paid to VLK by the customers.

This approach is fully in line with British practice.  See Luxmoore-May & Anr v Messenger May Baverstock [1990] 1 WLR 1009

"The measure of damage in this case is, I conclude, the different between what the foxhounds (NB: paintings by the artist George Stubbs) in fact realised consequent on the defendants’ breach of contract and what was their true market value at the time.  What better guide could there be to that value than the price at which these paintings happened to be knocked down at Sotheby’s so shortly afterwards?  The price which the international art market was willing to pay was surely prima facie the best evidence of the foxhounds’ value”.

            (Italics added)

Navalny and Ofitserov dispute this approach.  So far as I can understand it their argument is twofold:

(1)   That VLK did pay KirovLes a proper price for the timber.  This is said to be confirmed by the expert evidence they attempted to introduce, which I have previously touched on, which apparently shows that other customers were paying KirovLes even lower prices for timber KirovLes than VLK was; and

(2)   That VLK was providing KirovLes with value over and above the price it paid for the timber by acting "in effect” as KirovLes’s sales and marketing department.

(1)   Proper price paid by VLK for the timber?

Though the Judge read through the expert evidence provided by Navalny and Ofitserov concerning the low prices other customers paid KirovLes for its timber to their great dismay he refused in the end to admit this expert evidence as evidence in the case.  At Navalny’s and Ofitserov’s insistence he provided a Judgment setting out his reasons.

I have not read this Judgment.  From what I have heard of it this Judgment sets out the obvious objection to the relevance of this evidence: the issue in this case is the price of the timber acquired by VLK not the general or average price of timber sold by KirovLes at any one time or the price KirovLes was paid for completely different timber sold under completely different contracts to other customers in circumstances that are unknown.  Navalny’s and Ofitserov’s evidence does not touch on the price of the timber acquired by VLK and does not refute the way the price of that timber is calculated by reference to the price paid to VLK for this timber by VLK’s customers most of whom had previously been KirovLes’s customers.

The Judge was therefore in my opinion entirely correct to exclude this evidence.   I have no doubt a British Judge in the same position would either have done the same thing or would at the end of the case have said that the evidence did not disprove or affect the prosecution’s case.

The one thing I would say about this argument is that Navalny himself has come to believe it.  Reports from the trial speak of his shock when the Judge excluded the evidence.  This is confirmed by comments he made later on his blog.

Indeed Navalny seems to have already persuaded himself of this argument when the injury the arrangement with VLK was causing KirovLes was first exposed at the time of  Arzamatsev’s audit.  Navalny’s campaign to defend the arrangement and discredit the audit was based on this argument.  There is a tape of a telephone conversation he had with Ofitserov in which he anxiously questions Ofitserov about prices as he searches for evidence to support this argument.  His attempts to get Deloitte to conduct a second audit appear to have been based on this argument.  He seems to have convinced himself that Deloitte would also find that because KirovLes sold other timber for lower prices than those paid by VLK Deloitte would report that KirovLes had suffered no harm from the arrangement with VLK.  That the purpose of Navalny’s call to Deloitte was to exonerate Ofitserov and himself rather than discover the truth is shown by the record of his telephone conversation with Deloitte.  The record shows that he never told Deloitte that there had already been an audit and that the reason he wanted Deloitte to carry out an audit was because he did not agree with the first audit and wanted to discredit it.  The telephone conversation shows Navalny devious and manipulative at a moment when he most needed to appear honest and straightforward.

The fact that Navalny has persuaded himself of the truth of an argument which he appears to have thought would result in his acquittal does not make the argument any less wrong.  The argument is wrong regardless of whether Navalny himself believes it.

(2)   "in effect KirovLes’s sales and marketing department”

Somewhat inconsistently with the claim that VLK paid KirovLes a proper price for the timber is the claim also made specifically in closing speeches by one of the defence lawyers that VLK was providing KirovLes with value over and above the price it was paying for the timber by acting "in effect” as KirovLes’s sales and marketing department.

The best that can be said about this argument is that if that was the intention then this was not the right way to do it.  Though Navalny is a lawyer and Ofitserov is a businessman and though both claim to be experts in the way modern business is conducted it seems to have been lost on both of them that if VLK really was taking over the part of KirovLes’s business that was concerned with sales and marketing then this would have amounted to a transfer of an undertaking from KirovLes to VLK.

There is no evidence that any consideration for this transfer (if such it was) was ever given or that it was ever discussed or seriously thought about.  At best there seems to have been some vague idea that at some point in the future the arrangement would benefit KirovLes by drastically increasing sales to new customers who Ofitserov and VLK with their supposedly superior marketing skills would discover.  The reality is that in the four months that the arrangement was in existence Ofitserov and VLK only found a small number of new customers, the great majority of VLK’s customers remaining at all times the same customers who had previously bought timber directly from KirovLes.

Ultimately what is being suggested is that KirovLes agreed to provide VLK with an unsecured, indefinite and never formally acknowledged loan in the form of a discounted price for its timber in return for possible benefits at some indeterminate future time conditional upon VLK’s own trading success.  It is simply not credible that Opalev, an experienced enterprise director, would have willingly agreed to such an eccentric not to say quixotic arrangement especially with someone like Ofitserov who was previously unknown to him unless he was either pressured or bribed into it as he says and it must be doubtful that he would have had the right or authority to agree to it if he did.

In summary neither argument that Navalny and Ofitserov and their lawyers have made to deny the injury done to KirovLes is at all convincing.  The Judge was entirely right to reject both arguments.  That the arrangement with VLK did KirovLes injury is on the facts simply irrefutable.  Not surprisingly as the injury became increasingly obvious Arzamatsev as head of the state property fund and Bastrygina as the relevant executive within KirovLes stepped in to stop it.  That the loss suffered by KirovLes is limited to 3 million roubles is the result of their actions and is not something Navalny and Ofitserov should be given credit for.

I will briefly touch on the question of KirovLes’s financial condition, since this has been the subject of much discussion.  Briefly I do not know how strong KirovLes’s position was when Navalny and Ofitserov arrived on the scene.  However even if KirovLes’s situation was financially precarious that in no way changes the fact that Navalny and Ofitserov caused it injury.  It simply does not matter whether the victim of a theft is financially healthy or not.  A poor person can suffer harm just as a rich person can.

The whole subject has been confused by irrelevant speculation about whether Navalny’s and Ofitserov’s activities caused KirovLes’s eventual bankruptcy.  On the face of it given the limited scale of the loss that seems unlikely.  However it is a question which is totally irrelevant to the case.  Personally I can think of nothing more destabilising to an organisation in an already precarious condition than to have its experienced director removed in disgrace as a result of his involvement in a financial scandal.  To the extent that KirovLes was a major employer in the Kirov Region the lack of visible support for Navalny from the people of the Kirov during his trial perhaps tells its own story.  However it is not a factor in the case.

Before proceeding further it is worth pointing out that if Navalny and Ofitserov were being tried in Britain on the same facts all the elements in Section 1(1) of the Theft Act 1968 would at this point be present.  Article 158 however requires that the thief must have "a mercenary intention” and it is that which I will now consider.

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